Apple Investing $1 billion in US Manufacturing – Is a Display Fab Coming?

Shortly after Apple’s earnings release on Tuesday, May 2nd, Apple CEO Tim Cook appeared on CNBC to announce that the company would create a new $1 billion fund for US companies that do advanced manufacturing.  When we consider some other industry developments in recent weeks, we think that this investment might include investment in display manufacturing.

Subscribers to DSCC’s Quarterly Display Supply Chain Financial Health Report can read more detailed analysis of Apple’s Q1 earnings; the company beat analyst expectations with earnings per share of $2.10 but disappointed some with a small decline in iPhone unit sales.  Apple’s balance sheet as of March 31, 2017 carries a whopping $256 billion in cash and marketable securities against less than $100 billion in debt, so this new $1 billion investment may seem like chump change to Apple.  Still, as they say in Washington, “a billion here and a billion there, and pretty soon you’re talking about real money”.

In the CNBC interview, Cook said that the fund’s first investment would be in a US venture later this month, but he did not name the venture.  "By doing that, we can be the ripple in the pond. Because if we can create many manufacturing jobs around, those manufacturing jobs create more jobs around them because you have a service industry that builds up around them," Cook said.

This new investment comes on top of a $1 billion commitment in January to SoftBank Group’s $100 billion technology fund, which also includes Apple supplier Foxconn.  Foxconn CEO Terry Gou is reported to be close friends with the head of SoftBank, Masayoshi Son, and Son was pictured in December after a meeting with then-President-elect Donald Trump showing some plans for Foxconn investment in the US.

Softbank CEO Masayoshi Son in December meeting with Trump (source: fortune.com)

While we have reported several times on the possibility of a Foxconn investment for LCD TV manufacturing in the US, it may be more likely that the first big Foxconn investment is oriented toward making iPhones rather than TVs.  Consider the sequence of events:

• Fall 2016 – during his presidential election campaign, Donald Trump repeatedly criticizes Apple for manufacturing its iPhones in China.
• December 5, 2016 – President-elect Trump meets with SoftBank CEO Son, discussing a plan to invest $50 billion in the US to create 50,000 jobs (pictured above)
• January 4, 2017 – Apple announces $1 billion investment in the SoftBank tech fund
• January 23, 2017 – shortly after Trump inauguration, Foxconn chairman Terry Gou describes plans for US manufacturing: ““There is such a plan, but it is not a promise, it is a wish”
• Late February – per a source quoted by Nikkei Asian Review, Gou met in Washington with President Trump’s son-in-law Jared Kushner.
• April 27th – Gou is seen after a visit to the White House in a surreptitious visit (see our blog on this visit: http://www.displaysupplychain.com/blog
• May 3rd – Apple announces $1 billion investment fund for US manufacturing, with the first investment planned for this month.

Although Apple certainly has plenty of cash to fund this investment, most of that cash lies outside the US, and repatriating the cash would subject the company to the 35% corporate tax imposed by the US.  As long as Apple holds the cash overseas, it does not need to pay the tax.  In their earnings call, Apple CFO Luca Maestri noted that 93% of Apple’s cash, or $238 billion, lies outside the US, so “only” $18 billion is in US funds.  In the CNBC interview, Cook said that Apple will finance the $1 billion manufacturing fund by borrowing against its overseas holdings.
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For nearly the entire flat panel era, display industry manufacturing has been based almost entirely outside the US.  The Society for Information Display’s DisplayWeek conference (http://displayweek.org/), though, has maintained its place as the preeminent event in the display industry.  In the SID/DSCC DisplayWeek Business Conference on May 22nd, industry leaders will be discussing the possibility of display manufacturing in the US.  As reported last week, JobsOhio has stepped up as an event sponsor, and JobsOhio’s Ted Griffith will be participating on a panel session in the conference.  Whether the first Apple investment is announced before the conference or later in May, we are sure to have some provocative discussions.